Made in China: CNC Machine Game Changer

It started “innocently” when I was running my industrial 3D animation studio back before the .com boom of 2000. I was in the middle of contacting every manufacturing company in the world in order to offer my companies 3D animation service (what’s that? was the typical response) and telling them to go see Toy Story to get a sense of what’s possible. This was BEFORE the days of YouTube, when servers cost a fortune, bandwidth, phone systems etc… it was nowhere near as bargain basement as things are now. My workstation cost over 10K and your iPad is most likely more powerful than that dual-core processor industrial monster I had!

Offshoring Trends

I started noticing a trend over time talking to manufacturers… at first, they’d start to send their molds over to China (and India to a lesser degree) to save a fortune from doing it themselves in their home country (generally Europe or the USA). Once they found a confident and reliable partner, the molds became parts… why not, it’s far cheaper… then to machine components… why not, it’s far cheaper… then machine assemblies… why not, it’s far cheaper… and eventually, entire machines. During this time, the owners of these manufacturers were saving a fortune, able to cut staff and demand concessions.

Back then, manufacturers were ironically slowly killing themselves, buying Japanese, American and European machinery for their factories – having no trust in those produced by the Chinese… yet their own machines were increasingly being manufactured in China without too much issue… the economics were there, companies were paying full price for a machine mostly manufactured (parts and components) in China and they were making a killing!

3D animation business dies…

Well, it wasn’t long before Chinese manufacturers got a hold of 3D software and began undercutting my services big time – their sale to existing clients was a no brainer – pirated software was cheap, highly talented and educated employees were cheap and I couldn’t afford to even keep the lights on for the price they were charging manufacturers for industrial 3D animation. I’m not resentful, I couldn’t see it not happening… I noticed the same trend with programmers, increasingly, companies where sending jobs to Pakistan, India and Hungary for jobs to get done at a fraction of the price. I had to do this as well to keep margins healthy before everybody got wind of off-shoring and then the boom began.

For all the glamor you may think there is in the 3D marketplace, it’s mostly gone now, replaced by mega-studios that increasingly fight for smaller and smaller bread crumbs and are always one or two projects away from bankruptcy… not a business model I wished to invest in so I just let it die.

Chinese Mindset

Now, I’m going to make sweeping generalities here, I lived in China for two years and talked with many manufacturers there as well as married a mainland native while I was there – I also have been dealing with manufacturers for more than 15 years (wow time goes fast!). While I was in China, I taught ESL from primary to high school and a few things truck me.

1- They are DRIVEN and AMBITIOUS.

These kids would wake-up at 6am and be in school until 10pm at the high school level… this was TYPICAL. The classes were boring, mind numbing – I don’t know how they managed to stay awake… but they were given endless paperwork to complete and give back to the teacher. They were robots, here’s a task, get it done in x minutes, give it to the teacher then receive another task.

2- The Chines are HUNGRY!

I’m a Canadian so if you’ve done international business, an American is YES or NO generally, they make decisions quick and stand by them but the Chinese are at a whole other level. They’d easily cream the typical American if it wasn’t for just one “flaw”, the language barrier. Canadians, well, we have a more layed back approach to business… we are polite and aren’t generally boastful or ego driven. The Chinese are hungry for the deal… HUNGRY! I’ve talked to many designers here on CNCKingdom.com and they’ve noticed this as well… they’ll do anything to get things done, just like Americans but without the regulations getting in their way. You’d be too if you were in constant competition your whole live from primary school to business with all the competition around you.

3- Creativity, well… it’s hard to find.

The Chinese educational system is fantastic for creating robots who do A to get B… creativity counts for very little and as a result, most students I taught had trouble with anything that was off the cuff or required thinking. The Chinese culture is really incredible with it’s diversity and endless depth, it’s very fascinating but the modern era has, thanks to government influences as well, just taken out a lot of the creative juices that people should have. For instance, I’d be teaching a class – using lots of video and images which they LOVED – and if I asked them to imagine what their reaction to a certain hypothetical situation would be, they’d generally say “I have no idea” or with a bit more questioning, say exactly the same answer as the other student. The teachers? Well, they were exhausted, imagine having a class of 70 students to teach day in and day out for very little pay or reward.

4- Businesses are for the owners, not the employees.

When I visited a factory making porcelain pots and other items, I noticed how proud the owner was, with his brand new Mercedes at how much his workers wanted to work. It struck me as odd as nobody really wants to work 16 hours a day… and nobody really wants, after working 16 hours a day, to do overtime but guess what… they’d ask him all the time if they can work an extra hour or two. I was teaching a business class and the owner knew no English so I asked the students I was with to translate for me. What became evident was that the employees didn’t want to work there 16 hours a day much less ask for overtime – they had no choice – their wages were so low and they had no other opportunity to make money. They were working themselves to the bone for very little money while the owner of the company was boasting about his new car, going to restaurants with local officials etc. The employees knew what was going on but were powerless to do anything about it. Remember that China doesn’t allow unions, protests or anything resembling dissidence – ironically they are allowing this to happen but only for foreign companies, not Chinese ones. Business is set-up to enrich the owners, not empower or lift-up the employees.

5- Environmentally, China was awful.

Factories don’t have environmental standards, they dump stuff everywhere or burn it away. I was in Guiyang for a few months and developed a hacking cough inhaling all the fumes from the endless cars driving down the street and in the winter… all the charcoal used to keep people’s houses warm. Yes, they also use charcoal for cooking as well. The rivers were dead, I think I saw one fish in a river once, I think it was asking me to take it out of the water. You hear stories of the smog issues in Beijing… don’t forget, it’s just as bad if not worse in most other major cities across China where little press is made to solve the situation. The “beautiful” countryside was generally desolate, there are pockets of stunning beauty in China but you need to travel to find them.

Manufacturing Context

I’m not saying everything about China is bad, but overpopulation and the lack of standards (manufacturing, employment, environmental… ) have created a great opportunity for heavy industry where cheap and highly skilled labor is plentiful and profits generated selling to other countries without these issues are massive.

Manufacturers outside of China know that the playing field is really stacked against them, they have standards they must follow, higher electricity costs, unions fighting for better worker and compensation standards and the list goes on. You really can’t blame them for being severely attracted to the incredible advantages China has to offer them. It’s very hard to turn down how big the opportunity is within China and using them as part, if not all, to fulfill your manufacturing needs.

Governments, for some odd reason, don’t seem to care about what’s going on… there is a reason why manufacturing is having trouble around the world – this isn’t China’s fault but when a friend of mine recently bought a CNC router for a third the price of a locally produced one… that comes at the cost of jobs with the offshoot that now, he can compete against and undercut profitably, his competitors that did support companies with local manufacturing. It’s a deviously cyclical pattern that almost “forces” others to do the same just to compete.

CNC Importers

Wow are the number of CNC importers exploding! I was talking to a Canadian importer of CNC machines last week for about an hour – he wanted to advertise his business on CNCKing.com as he saw an opportunity there (as do I) but now isn’t the time for me to pull the trigger for various reasons.

There is some severe pressure being put on non-Chinese manufacturers… the more they get done locally, the more their machines cost but they beat-out their Chinese counterparts in quality – you absolutely get what you pay for!

What astounded me about our conversation was that he pointed me to a Chinese manufacturer he was working with – he knows Chinese machines have issues so he inspects every machine before importing and hired a full time tech to fix machine issues – I was blown away. This was the first Chinese company that was going full-tilt, head to head, against major brand names in the CNC world. How? Well, they ADVERTISED that their stepper motors were from Japan (best in the business), they translated their CNC control software into more than a dozen languages and had a roadmap of software and hardware updates. What blew me away the most was their website, it was written as if an American manufacturer wrote it. I told the importer that this isn’t a Chinese company and he told me I was right… it was a partnership between a Chinese factory, an European and an American enterprise. Basically, these guys ARE CNC and knew what causes most CNC purchases to second-guess going Chinese and dealt with it right away.

Now, for the American boasting… they had logos of all the companies they were competing head-to-head against and not only was their software compatible with these manufacturers but the models looked very similar as well – they offered a host of custom options and just going their their listing – you knew they were serious about the international market.

I saw this company and I saw the future of Chinese manufacturing… the other guys will eventually catch-up and that will put incredible downward (price wise) pressure on European and American CNC manufacturers. Why? Well, they can’t drop their prices in half without pissing-off their own customer base so they are “trapped” in their high-priced tier and their staff, equipment etc… are far more expensive to maintain than their Chinese counterparts. Like I wrote, it isn’t anywhere near an even playing field.

CNC Manufacturers Solutions

I have a few solutions to this issue but I fear that it’s most likely too late to do much about it, the ball has already started to roll and gained enough momentum that stopping it would be ill advised for the global marketplace.

1- Protectionism and tariffs

I hate protectionism like the next guy but seriously, the governments of the world have to wake-up and realize what’s going on before their manufacturing base is completely decimated… just look a the massive drop seen in the USA over the past decade. Either let American and European manufacturers dump their garbage everywhere, let their employees fight among themselves for who will work the hardest for the least wages and severely weaken regulations in general or raise import tariffs to account for this massive discrepancy.

2- IP and copyright protection

China has made strives in this area but it still has a long way to go, manufacturers spend millions if not billions every year developing novel and innovative technologies that help them stay in business that much longer and get patents and design copyrights to allow them to pay back that initial investment. Say what you will about these but why would a company invest this money if it can just copy from the other guy without repercussion? The Chinese are incredibly good at copying a machine and turning around and selling it without having to be concerned about the amount of research and development required to build the machine in the first place. The result? They have no ROI required for that innovation so they can sell the machine for a lot cheaper!

3- More partnerships!

Yep, this may sound counter-intuitive, but manufacturers, if they hope to survive, must partner-up with their Chinese counterparts… I really don’t see things working any other way. The reason is two fold, the first, is that the Chinese marketplace, however cut-throat it is, is still a massive marketplace with enormous possibilities and potential. I saw it first hand… and manufacturers need to see this as well. The second reason is to bring IN standards and mindsets that they aren’t use to… like I wrote, the Chinese are incredibly ambitious, smart, competitive and driven but also malleable given the opportunity and chances. The more “we” collectively bring our species up, the more “we” all win at the end of the day.